Auditor warns on Novo Banco Legal, Angola risks as sale looms

Portugal’s Novo Banco, which the state is trying to sell after rescuing it in 2014, faces significant litigation risks and may fail to recover all of its loans to Angola’s Banco Economico, auditors PricewaterhouseCoopers (PwC) said on Wednesday.

Novo Banco is the “good bank” carved out of Banco Espirito Santo (BES), which collapsed in 2014 under the weight of its founding family’s debts and exposure to bad loans in Angola.

The first attempt to sell it failed last year but the Bank of Portugal has relaunched the process this year and said it will study various options, including a tender to one or more investors and a public offering of shares.

Novo Banco is restructuring and said in a presentation on Wednesday it was aiming to sell 1.8 billion euros in non-core assets, including real estate and equity stakes, this year, while closing 170 branches to cut costs. It expects provisions to normalise after hefty impairments in 2014-15.

Novo Banco has said it does not expect to bear any litigation charges, which would be handled by Portugal’s Bank Resolution Fund instead, but PwC, which audited its 2015 results had a different view.

“Considering that the creation of the bank resulted from a resolution measure for BES, which had relevant impact on third parties, the risk of litigation involving Novo Banco is significant,” the auditors wrote in a report on the results.

The litigation risks are related to assets, debts and managed assets defined by the resolution measure and transferred to Novo Banco, the report said.